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Why the “I’ll sign anything” approach to statutory declarations for payment of subcontractors is a dangerous game to play

It is a common requirement in construction contracts, that employee project managers or contract administrators, must sign a statutory declaration stating that payment of subcontractors has been made before the principal will make payment. However there is a tendency for those providing the declaration not to properly check first to confirm that payment has actually been made. On a busy project, statutory declarations can fall into the category of general paperwork or another tedious administrative task, only to be signed and sent out at the last minute so that a payment claim can be made.

The relatively recent case of 470 St Kilda Road v Robinson [2013] FCA 1420 (470 v Robinson) serves as a reminder that those who sign statutory declarations can be personally liable when the contents of their declarations turns out to be false.

470 v Robinson follows on from the case of 470 St Kilda Road Pty Ltd v Reed Constructions Australia Pty Ltd & Anor [2012] VSC 235. In this first proceeding, 470 St Kilda Road Pty Ltd (the Principal) brought an action against the Reed Constructions Pty Ltd (the Contractor), seeking a declaration that an adjudication determination made under the Building and Construction Industry Security of Payment Act 2002 (Vic), be set aside, on the basis that the payment claim it related to was not made in good faith. During the course of the project, the Contractor became insolvent, but not before submitting one last payment claim (Payment Claim 16). Payment Claim 16 was supported by a false statutory declaration stating that the Contractor had paid its subcontractors. In response to the claim for payment, the Principal certified the amount of $760,698.84 as owing, but withheld the amount after finding out that the Contractor was insolvent. The Contractor then used Payment Claim 16 as a basis to have the payment dispute determined by an adjudicator. The adjudicator found in favour of the Contractor, awarding the full amount certified in the payment schedule.

When the matter reached the Victorian Supreme Court, the Principal argued that because the statutory declaration was made when the maker knew the contents to be false, the whole payment claim it supported was in bad faith and therefore invalid. The Court declined to agree with the Principal, holding the payment claim was not required to be made in good faith and thus was unaffected by the false statutory declaration. The result was that the adjudication determination made on the basis of that payment claim was upheld.

One might consider this was a positive outcome from the perspective of the employee project manager, Mr Robinson, who had falsely made the statutory declaration, as the payment claim it supported, and subsequent adjudication determination were not unravelled as a result. However, for Mr Robinson this marked the beginning of a separate case, in which the Principal argued he should be personally liable for a greater amount of loss suffered by the Principal.

In 470 v Robinson, the Principal brought proceedings against Mr Robinson individually in respect of Payment Claim 15 (the previous payment claim), for which the Principal had certified $1,426,641.70 as owing to the Contractor and paid this amount. The Principal claimed that Mr Robinson also made a false statutory declaration in support of Payment Claim 15 and as such, Mr Robinson should be liable for the amount paid as the Principal would not have made this payment if Mr Robinson had not made the statutory declaration. The Principal claimed that as Mr Robinson did not have a reasonable basis for making the statutory declaration submitted in support of Progress Claim 15 and therefore he had:

engaged in misleading and deceptive conduct; and/or

acted negligently in breach of his duty of care.

To make the situation more serious for Mr Robinson, the Contractor’s insurer, denied that Mr Robinson was entitled to rely on the Contractor’s Director’s and Officer’s insurance policy (D&O Policy), on the basis that the D&O Policy would not apply to an act that occurred “in the rendering of professional services” to a third party. The Insurer argued that by signing the false statutory declaration, Mr Robinson, as a Project Manager, had performed a “professional service” and was therefore not covered by the D&O Policy.

Mr Robinson was ultimately successful in arguing that the policy exclusion was intended to exclude “services that are truly professional in nature, such as architectural design, engineering, surveying and quantity surveying” and that the “clause was not intended to apply to the routine activities of [employees of] Reed…including the provision of information in support of its payment claims…”,1 Thus Robinson was entitled to rely on the indemnity in the D&O Policy in relation to the claims made by the Principal, rather than having to pay any damages awarded to the Principal out of his own pocket.

Nevertheless it was a lengthy and costly ordeal for Mr Robinson (who was involved in both cases), not to mention that he was very nearly held personally liable for a $1.4 million claim for signing a document which most would consider routine on any construction project.

Mr Robinson’s experience serves as a lesson for employee project managers to treat the signing of statutory declarations seriously. When providing a statutory declaration it is imperative that project managers investigate the basis for the statutory declaration and keep a record which supports their belief in the statements made. In this way, those providing a statutory declaration can show that they had a reasonable belief in those matters they declare to be correct.

The cases also serve as a reminder that contractors should ensure that those who are providing statutory declarations actually have the applicable power to do so and only provide statutory declarations within the scope of those powers.

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